Respuesta :
Answer:
The adjusting entries are sufficiently explained in the explanations below. Thank you.
Explanation:
The question is to determine the adjusting entries that are required for the accounts of Aaron Lynch Company for 31 Dec,2019
1) Paid $2,700 for 12 Months insurance cover in June, 2019
Insurance cover for 2019 = 7 monhts (June - Dec)/12 x $2,700= $1,575
Prepaid Insurance for 2020 = 5/12 x $2,700 = $1,125
2)Service Fee Collected for Consulting Services Dec 1, 2019 - March 31,2020
Service Fee for 2019 = 1 months/ 4 Months x $40,000 = $10,000
Unearned for 2020 = 3/ 4 months x $40,000 = $30,000
3)$900 woth of supplies are on hand
This is supply expenses
Based on these calculations, the adjusting journal entries are as follows
Date Description Debit Credit
December, 31, 2019 Prepaid Insurance 1125
Insurance Expense 1,125
Being the record of Prepaid insurance for 2020
December, 31, 2019 Service Revenue 30,000
Unearned Service Revenue 30,000
Being the record of unearned service revenue up till march, 2020
December, 31, 2019 Supplies 900
Supplies Expense 900
Being the record of service revenue on hand December 31, 2020
Answer:
1. Debit Insurance expense $1,575
Credit prepayment $1,575.
2. Debit Unearned income $10,000
Credit Service revenue $10,000
3. no entries are required as the balance would be recognized in the balance sheet as inventory balance
Explanation:
When an amount is paid in advance for insurance yet to be enjoyed, the entries required are debit prepayment and credit cash account. On incurring the expense, the entries to be posted are debit insurance expense, credit prepayment.
For amounts received in advance for service yet to be rendered, debit cash account and credit unearned revenue. When revenue is earned, debit unearned revenue and credit service revenue.
For supplies that are purchased, debit supplies account and credit cash or accounts payable. When supplies are used up, the amount used up is recorded as debit supplies expense and credit supplies account.
As such where Aaron Lynch Company paid $2,700 for 12 months of insurance coverage on June 1, 2019, as at purchase time, debit prepayment $2,700 and credit cash account $2,700.
As at 31 December, expense to be recorded amounts to
= 7/12 * $2,700 (1 June to 31 December is 7 months)
= $1,575
To record this,
Debit Insurance expense $1,575
Credit prepayment $1,575.
where On December 1, 2019, Aaron Lynch Company collected $40,000 for consulting services to be performed from December 1, 2019, through March 31, 2020, amount earned as revenue as at December 31 would be
= 1/4 * $40,000
= $10,000
Entries required are
Debit Unearned income $10,000
Credit Service revenue $10,000
Finally, where a count of supplies on December 31, 2019, indicates that supplies of $900 are on hand, no entries are required as the balance would be recognized in the balance sheet as inventory balance.
